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Exam 3: Where Prices Come From: The Interaction of Supply and Demand

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Question 1

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Suppose that a recent study finds that stricter alcohol policies,such as raising the price of alcohol or banning the sale of alcohol close to university campuses,decrease the number of students who use marijuana.On the basis of this information,how would you describe alcohol and marijuana?

A) The two goods are substitutes in consumption.
B) There is no relationship between the two goods.
C) The two goods are complements in consumption.
D) They are both luxury goods.

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Question 2

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If a firm has an incentive to increase supply now and decrease supply in the future,the firm expects that the

A) price of its product will be lower in the future than it is today.
B) price of its product will be higher in the future than it is today.
C) price of inputs will be lower in the future than they are today.
D) demand for the product will be lower in the future than it is today.

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Question 3

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Chips and salsa are complements.If the price of salsa decreases,the demand for chips will increase.

What is the difference between a "change in demand" and a "change in quantity demanded"?

A normal good is a good for which the demanded increases as income decreases,holding everything else constant.

The substitution effect explains why there is an inverse relationship between the price of a product and the quantity of the product demanded.

Assume there is a surplus in the market for hybrid automobiles.Which of the following statements correctly describes this situation?

The growing popularity of energy conservation has enticed large home improvement stores like Rona to offer tankless water heaters.How does the fact that home improvement stores now offer these products affect the tankless water heater market?

A decrease in the equilibrium price for a product will result

All else equal,a successful marketing campaign for energy drinks would cause the equilibrium price of energy drinks to ________ and the equilibrium quantity of energy drinks to ________.

If the price of gasoline increases,what will be the impact in the market for public transportation?

A firm has an incentive to decrease supply now and increase supply in the future if it expects that

Technological advancements have led to lower prices and an increase in the sale of digital cameras.How does this affect the digital photo printing paper market?

The income effect of a price change refers to the change in the quantity demanded of a good that results from a change in purchasing power as a result of the price change.

Figure 3.4 Alt text for Figure 3.4: In figure 3.4,a graph of the effect of technological advancement on supply curve. Long description for Figure 3.4: The x-axis is labelled,Quantity,and the y-axis is labelled,Price.Curve Supply,S1,is a straight line which slopes up from the bottom left corner to the top right corner.2 points,A and B,are marked in the middle of curve S1.Curve S2 follows the same slope as curve S1,but is plotted to the right.A right pointing arrow indicates the change from curve S1 to curve S2. -Refer to Figure 3.4.A technological advancement would be represented by a movement from

A decrease in the demand for eggs due to changes in consumer tastes,accompanied by a decrease in the supply of eggs as a result of an outbreak of Avian flu,will result in

What is the difference between an "increase in demand" and an "increase in quantity demanded"?

Figure 3.15 Alt text for Figure 3.15a: In figure 3.15a,a graph of intersecting demand and supply curves represents a rising supply of Blu-ray disc players. Long description for Figure 3.15a: The x-axis is labelled,Quantity and the y-axis is labelled,as Price.Curve D1 is a straight line which slopes down from the top left corner to the bottom right corner.Curve S1 is a straight line which slopes up from the bottom left to the top right.The point of intersection is at the midpoints of both lines.Curve S2 is a straight line,parallel to curve S1,but plotted to the right.A right pointing arrow indicates the change from S1 to S2. Alt text for Figure 3.15b: In figure 3.15b,a graph of intersecting demand and supply curves represents a falling supply of Blu-ray players. Long description for Figure 3.15b: The x-axis is labelled,Quantity and the y-axis is labelled,as Price.Curve D1 is a straight line which slopes down from the top left corner to the bottom right corner.Curve S1 is a straight line which slopes up from the bottom left to the top right.The point of intersection is at the midpoints of both lines.Curve S2 is a straight line,parallel to curve S1,but plotted to the left.A left pointing arrow indicates the change from S1 to S2. Alt text for Figure 3.15c: In figure 3.15c,a graph of intersecting demand and supply curves represents a rising demand for Blu-ray players. Long description for Figure 3.15c: The x-axis is labelled,Quantity and the y-axis is labelled,as Price.Curve D1 is a straight line which slopes down from the top left corner to the bottom right corner.Curve S1 is a straight line which slopes up from the bottom left to the top right.The point of intersection is at the midpoints of both lines.Curve D2 is a straight line,parallel to curve D1,but plotted to the right.A right pointing arrow indicates the change from D1 to D2. Alt text for Figure 3.15d: In figure 3.15d,a graph of intersecting demand and supply curves represents a falling demand for Blu-ray disc players. Long description for Figure 3.15d: The x-axis is labelled,Quantity and the y-axis is labelled,as Price.Curve D1 is a straight line which slopes down from the top left corner to the bottom right corner.Curve S1 is a straight line which slopes up from the bottom left to the top right.The point of intersection is at the midpoints of both lines.Curve D2 is a straight line,parallel to curve D1,but plotted to the left.A left pointing arrow indicates the change from D1 to D2. -Refer to Figure 3.15.Assume that the graphs in this figure represent the demand and supply curves for blu-ray discs.Which panel best describes what happens in this market if there is a substantial increase in the price of blu-ray players?

Which of the following is the correct way to describe equilibrium in a market?

When deciding on which new products to develop,a firm must devote people,time,and money to designing a new product.Because any firm has only limited resources,it